Fiscal policy may be defined as the use of income and expenditure instruments or policies to control or regulate the economic activities in a country. It is a plan of action by government pertaining to the raising of revenue through taxation and other means and the pattern of expenditure to be applied. Some of the fiscal policies of the government are incorporated in the budget so as to help in directing economic activities in the country.
Objectives of fiscal policies
- Economic development: A good fiscal policy can be used by government to ensure rapid economic development of a country.
- Revenue generation: Fiscal policy can equally be used to ensure that enough revenue is generated for government use.
- Creation of employment: A good fiscal policy can be used by government to provide job opportunities for the people.
- Industrial development: Industrial growth and development can be achieved through a well packaged fiscal policy by the government.
- Income redistribution: Government can use fiscal policy to ensure that the wealth of the country is equitably distributed.
- Increased productivity: Productivity by workers can be increased if government can formulate good fiscal policy for the country.
- Control of inflation: Fiscal policy instruments can be used by government to control inflation in the country, e.g. increased taxation on personal income, reduced government expenditure, etc.